Question: VanMannen Foundations, Inc. (VF) VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below. EBIT
VanMannen Foundations, Inc. (VF) VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below.
| EBIT = | $80,000 |
| Growth = | 0% |
| Orig cost of equity, rs = | 10.0% |
| No. of shares = | 10,000 |
| Price per share = | $60.00 |
| Tax rate = | 25% |
Refer to the data for VanMannen Foundations, Inc. (VF). Now the company is considering using some debt, moving to the market value capital structure indicated below. The money raised would be used to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, what would be VF's new WACC and its new value of operations?
| New interest rate = rd = | 6.00% |
| New cost of equity = rs = | 10.75% |
| New Debt/Value = wd = | 20% |
| New Equity/Value = ws = | 80% |
WACC Value
Group of answer choices
A 9.50% $631,579
b 9.80% $644,211
c 10.10% $657,095
d 10.40% $670,237
e 10.70% $683,641
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
Study Help